Fitch Ratings assigns an 'AA' rating to the following Pennsylvania Turnpike Commission Motor License Fund-enhanced turnpike subordinate special revenue bonds, series B of 2010:
--$17.28 million subseries B-1;
--$20.891 million subseries B-2;
--$26.035 million subseries B-3;
--$41.99 million subseries B-4.
Additionally, Fitch affirms the 'AA' rating on the Commission's outstanding subordinate special revenues bonds, series A of 2010.
The Rating Outlook is Stable.
The bonds are expected to sell via negotiation during the week of Oct. 18, 2010.
RATING RATIONALE:
--While intended to be repaid with residual Commission toll revenues, the 'AA' rating rests upon the State Treasurer's ability, pursuant to the authorizing legislation (Act 44), to draw upon certain funds in the Commonwealth's Motor License Fund (the Fund)to make up any deficiency in debt service deposits expected to be made by the Commission. Act 44 further includes non-impairment language.
--Appropriation on the part of the Commonwealth is not necessary to access the Motor License Fund to cover a debt service deposit deficiency.
--A reserve fund and a debt service set-aside account have been established to ensure timely ability to cover any debt service deficiencies.
--The Motor License Fund receives a variety of fuel and other vehicle-related revenues which are not expected to vary significantly from year to year. The Fund has exhibited large average daily balances in recent years, providing sound protection should a draw on the fund become necessary.
KEY RATING DRIVERS:
--Additional Motor License Fund leveraging plans beyond those currently contemplated.
--Fundamental changes in Commonwealth transportation funding that affect revenue performance of or available balances in the Motor License Fund.
SECURITY:
Motor License Fund-enhanced special revenue bonds are limited obligations of the Commission, secured by a junior pledge on the Trust Estate securing the Commission's subordinate revenue bonds. Nonetheless, ultimate security for the bonds rests with the ability to access certain monies in the Commonwealth's Motor License Fund to fund debt service if necessary.
CREDIT SUMMARY:
The bonds being offered represent the second issuance of Motor License Fund-enhanced turnpike subordinate special revenue bonds (special revenue bonds) contemplated under Act 44 of the Commonwealth. Act 44 was essentially designed to annually support statewide transportation projects through increased toll revenues generated by the Commission on its facilities and, if and when permitted, from tolls on I-80. While the special revenue bonds are intended to be repaid with residual Commission toll revenues, the rating rests upon the State Treasurer's ability to draw upon certain funds in the Commonwealth's Motor License Fund to make up any deficiency in debt service deposits expected to be made by the Commission. The claim on Motor License Fund revenues is stated directly in Act 44 which authorizes these bonds, and no appropriation on the part of the Commonwealth is necessary. Act 44 further states Commonwealth's intent not to impair its commitment to bondholders.
The Commonwealth's Motor License Fund receives proceeds of motor fuels taxes, vehicle registration fees, license taxes, operator license fees, as well as other excise taxes and federal transportation revenues. The Commonwealth's constitution requires such proceeds to be used exclusively for construction, reconstruction, maintenance and repair of and safety on public highways and bridges and for debt service on obligations incurred for these purposes. Revenue performance among sources into the Motor License Fund has been fairly steady, and Fitch expects, given the nature of the sources, continued steady to slightly declining performance going forward. Motor License Fund average daily balances in recent years have been significant, with fiscal 2009 levels at about $1.56 billion. While the Motor License Fund has been a source of interfund borrowing for the Commonwealth's general fund, a return to external cash flow borrowing by the Commonwealth should limit this necessity going forward.
Neither the Motor License Fund nor its revenues are directly pledged to bondholders. Instead, the claim on Motor License Fund revenues is stated directly in Act 44 which authorizes these bonds, and no appropriation on the part of the Commonwealth is deemed to be necessary. A memorandum of agreement by and among the Pennsylvania Department of Transportation (PennDOT), the Commonwealth's Office of Budget, and the State Treasurer spells out the timing of notifications necessary should a draw on the Motor License Fund become necessary. Fitch believes this structure would avert a missed debt service payment. Further, a Special Revenue Bonds Funded Debt Service Sub-Account, funded at closing with bond proceeds in the amount of 50% of maximum annual debt service (MADS), is available to be drawn upon if PennDOT or the Treasurer failed to transfer monies from the Motor License Fund. If Motor License Fund monies are received subsequent to a withdrawal from this Funded Debt Service Sub-Account, such monies would go to restore it. The Commission has no obligation to maintain the balance or replenish any funds withdrawn.
Additionally, the memorandum of agreement creates the Pennsylvania Turnpike Commission Special Revenue Bond Account within the Motor License Fund. The State Treasurer agrees to use best efforts to maintain the fund at a level equal to MADS on the special revenue bonds. This account is not pledged to bondholders, but the stated intent is to use balances in the account to cover deficiencies in Commission payments for the special revenue bonds in the event no other funds are available in the Motor License Fund. The memorandum requires replenishment from first monies into the Motor License Fund from certain sources if the PTC Special Revenue Bond Account is drawn upon. Fitch notes that not all monies in the Fund are available for debt service coverage, and that priority is placed on sources to be drawn upon. Nonetheless, the sizeable balances and limitation on leverage provide sound protection.
Act 44 limits Motor License Fund-enhanced debt to $5 billion, with no more than $600 million to be issued annually. The Commission currently expects to issue less than $2 billion under this credit, though an additional bonds test limits MADS to no more than one-third of the average daily balance in the Fund for the prior year. While the Commission's subordinate indenture specifies a rate covenant setting toll rates to effect 1.0 times (x) combined subordinate and Motor License Fund-enhanced debt service coverage, average daily balances in the Motor License Fund for fiscal 2009 provide approximately 44x MADS coverage of the initial and presently offered subordinate special revenue bonds.
Additional information is available at 'www.fitchratings.com'
Applicable criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. State Government Tax-Supported Rating Criteria', dated Oct. 8, 2010;
--'State Credit Enhancement Program Criteria', dated Dec. 16, 2009.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
State Credit Enhancement Program Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=491794
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564546
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
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